Assembly and Senate Budget Subcommittees Consider Local Government Financing Issues

The Assembly and Senate Budget Subcommittees No. 4 met this week to consider a number of proposals in the Governor’s budget related to local government financing. Their actions are summarized below. Keep in mind that subcommittee actions that are not the same essentially send those items to Conference Committee later in the year.

Insufficient ERAF. The Governor’s proposed budget includes funding for three counties that are experiencing an inability to fully fund their Triple Flip and VLF Swap amounts from ERAF. Current statutes require county auditor-controllers to reimburse cities and counties for the Triple Flip and VLF Swap from property taxes shifted to ERAF. Generally, there are plenty of revenues in the ERAF to fund those two reimbursements. However, state statute requires that, if there is not enough revenue in the ERAF to fully reimburse the Triple Flip and VLF Swap, auditor-controllers may transfer property tax revenues from non-basic aid schools to provide full reimbursement to cities and counties. In this case, the state would then backfill the non-basic aid schools’ property tax losses with state General Fund revenues. There is no statutory direction, however, when there are no non-basic aid school districts in the county or not enough property tax revenue available in the existing non-basic aid school districts in the county to fully reimburse the Flip and Swap. This scenario has occurred in these three counties in 2012-13.

CSAC strongly supports fully funding these counties and their respective cities to offset costs associated with the Flip and Swap. Both subcommittees kept this item open, as final numbers for the total amounts will be updated in the May Revision.

State-County Assessors’ Partnership Agreement Program. The Governor has proposed a new State-County Assessors’ Partnership Agreement Program that would provide $7.5 million in grants to local assessors’ offices to enhance local property assessment efforts. The grant program would be limited to nine county assessors’ offices competitively selected from a mix of urban, suburban, and rural counties. CSAC communicated its general support for the program before both subcommittees, as did the California Assessors’ Association.

The Legislative Analyst’s Office (LAO) prepared a brief analysis of the proposal and included a number of suggestions for improving the program, including altering the requirement for a county match to reflect each county’s share of benefits from additional spending in the system; eliminate early termination of the grant; allocating the grant in proportion to the total property value in that county; and selecting counties to participate randomly.

Both subcommittees held this item open pending ongoing discussion between stakeholders to develop trailer bill language to enact the program.

Stranded Supplemental Property Tax Revenues. The Governor’s budget includes trailer bill language that authorizes the distribution of supplemental property taxes when all K-12 school districts are basic aid. Because supplemental property taxes cannot be distributed to basic aid schools, there is no statutory direction as to what to do with that share of supplemental property tax revenue. This situation has occurred in Plumas County, where the auditor-controller has deposited these revenues in an impound account awaiting direction from the Legislature. CSAC worked with Plumas County and the State Association of County Auditors to bring this matter to the attention of the Administration.

Both subcommittees approved the trailer bill language this week.

Mandates. The Governor’s proposed budget includes a number of items related to state mandates. First, it proposes to fund 13 mandates for a total of $33.6 million. These mandates are primarily in the areas of public safety and property tax administration. Both subcommittees approved funding for these mandates.

Second, the Governor’s budget proposes to suspend 62 mandates, including 60 that were suspended previously and two new mandates – the Local Agency Ethics Mandate and the Tuberculosis Control Mandate. Cost estimates for these two mandates are about $162 million. The Assembly Budget Subcommittee rejected suspending these two mandates, primarily due to concerns about the policies behind them and in recognition of the concerns of the general practice of mandate suspension. The Senate Budget Subcommittee took action to suspend the Local Agency Ethics mandate while adopting the LAO recommendation to revise the statute to eliminate the mandate and deferred action on the Tuberculosis Control mandate until Senate Budget Subcommittee No. 3 considers it (Subcommittee No. 4 will conform its action to Subcommittee No. 3).

The Assembly Budget Subcommittee suspended the 60 previously-suspended mandates as proposed in the Governor’s budget. After a great deal of testimony from CSAC and members of the public and a compelling statement from Senator Tom Berryhill (see his CSAC blog post here), the Senate Budget Subcommittee voted to fund previously-suspended elections mandates at $100 million. (Counties will recall that, in order to un-suspend a mandate, all previous years’ claims must be paid.) This action will place the issue of funding for elections mandates into Conference Committee. The Senate Budget Subcommittee held open the issue of the remaining mandates proposed to be suspended for consideration after the May Revision.

Infrastructure Financing Districts. The Senate Budget Subcommittee heard the Governor’s proposal to expand the use of Infrastructure Financing Districts (IFDs). Under current law, IFDs are authorized to use tax increment financing to finance tax allocation bonds and use the proceeds for specific types of local development. The Governor’s proposed budget includes expansion of the IFD construct to include broader uses than those currently authorized, including military base reuse, urban infill, transit priority projects, affordable housing, and associated consumer services. Cities and counties would be required to meet specified benchmarks in order to be able to utilize the IFD construct. Voter approval requirements would be reduced to 55% from two-thirds.

The Subcommittee engaged in a robust discussion with representatives from the Department of Finance, as well as the LAO, who recently released an analysis of the Governor’s proposal. In its analysis, the LAO makes a number of suggested changes to the Administration’s plan, including eliminating the ability of IFDs to fund retail facilities, rejecting a proposal authorizing the Department of Finance to audit IFDs, adjusting the approval and creation process by allowing all affected residents to vote for the IFD proposal and clarifying that IFDs are a distinct local entity, and rejecting any preconditions associated with redevelopment dissolution, as proposed by the Administration.

CSAC generally supports the direction the Administration is heading with regards to IFDs. We have communicated our long-standing position that financing mechanisms that utilize tax increment financing should also require the express consent of affected taxing entities. This item was held open pending continued dialogue with stakeholders.

Elections

AB 2273 (Ridley-Thomas) – Support
As introduced February 21, 2014

CSAC strongly supports Assembly Member Sebastian Ridley-Thomas’ AB 2273, which would provide reimbursement to counties for special vacancy election costs from January 1, 2013 on.

Counties received state reimbursement for special vacancy elections for many years up through the end of 2007. Since then, counties have spent tens of millions of dollars to fill well over 20 legislative and congressional vacancies. These elections are costly and come to counties unexpectedly, after budgets have been approved, placing a significant fiscal burden on county elections departments and other county general funds.

AB 2273 will be heard in the Assembly Elections and Redistricting Committee on April 1.

AB 1948 (Mullin) – Concerns 
As introduced February 21, 2014

Assembly Member Kevin Mullin has introduced AB 1948, a measure that would impose minimum training/education requirements for those elected or appointed to the office of County Treasurer/Tax Collector. Under current law, county Board of Supervisors can adopt minimum standards for the position of County Treasurer/Tax Collector, both appointed and elected. Many Boards of Supervisors have exercised this authority while some have not.

CSAC joins RCRC in expressing our concerns that establishing the qualifications for the office of County Treasurer/Tax Collector is a matter best left to the discretion of the board of supervisors.

AB 1948 is set to be heard in the Assembly Local Government Committee on April 2.

Taxes

AB 2109 (Daly) – Concerns
As amended March 24, 2014

AB 2109, by Assembly Member Tom Daly, would require the Board of Equalization to annually report information related to locally-assessed parcel taxes, including the type and rate of tax, the number of parcels subject to and exempt from tax, the sunset date of the tax, and the revenue generated from the tax. This information would be provided to the Board of Equalization by the county auditor.

CSAC has communicated its fiscal concerns about AB 2109 to the author, who has committed to working with us to minimize costs.

AB 2109 is set to be heard in the Assembly Local Government Committee on April 2.

AB 2170 (Mullin) – Support
As introduced February 20, 2014

CSAC supports AB 2170, by Assembly Member Kevin Mullin, which would clarify that joint powers authorities may exercise any power common to the contracting parties, including levying fees and taxes. Joint powers authorities are an important part of California governance, and clarifying the law in an appropriate means to ensure a common understanding of joint powers authorities’ powers to levy fees or taxes.

AB 2170 is scheduled to be heard in the Assembly Local Government Committee on April 2.